- (1.) HEARD.
(2.) ON an application under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question for the opinion of this Court : "Whether, on the facts and in the circumstances of the case the Tribunal was justified in applying the decision of the Supreme Court in the case of CIT vs. Kalyanji Mavji & Co. (1980) 15 CTR (SC) 154 : (1980) 122 ITR 49 (SC) and thereby holding that the expenditure incurred in restoring the swimming pool and the boundary wall were allowable as revenue expenditure ?" The assessee is a registered firm running a hotel. The relevant assessment year is 1988-89. The hotel had a swimming pool and boundary wall. Both these were demolished by the district authorities alleging infringement of local laws. The assessee filed writ petition. On the writ petition, High Court ordered for restoring the demolished portion. The assessee has thereafter restored the original swimming pool and boundary wall at the same place and with the same height and incurred expenditure of Rs. 59,500 and Rs. 74,606, respectively, and claimed these expenses as revenue expenditure. The ITO was of the view that as the construction of swimming pool and boundary wall is an asset which is of enduring nature. In the appeal before the CIT(A), the CIT(A) has also endorsed the view taken by the ITO. In appeal before the Tribunal, the Tribunal has taken a view that swimming pool and boundary wall were there prior to demolition and by Court's order both were restored and, therefore, whatever expenditure has been incurred were for the purpose of business and it should be allowed as revenue expenditure. The Tribunal has placed reliance on a decision of the Honourable Supreme Court in CIT vs. Kalyanji Mavji & Co. (1980) 15 CTR (SC) 154 : (1980) 122 ITR 49 (SC). None appeared for the assessee when the case was listed on 12th May, 2003, and the case was adjourned for today. Today also nobody appeared for the assessee. We have heard the learned counsel for the Department Mr. Sandeep Bhandawat. Mr. Bhandawat submits that when the expenses are incurred on the assets which are of enduring nature, that should be treated as capital expenditure and not revenue expenditure. He has placed reliance on the decision of Karnataka High Court in Senapathy Synams Insulation (P) Ltd. vs. CIT (2001) 166 CTR (Kar) 277 : (2001) 248 ITR 656 (Kar) wherein on similar facts an expenditure on boundary wall which was constructed by the assessee was treated as capital asset. The facts are not in dispute that the assessee has claimed expenses on construction of swimming pool and boundary wall as revenue expenses as they were in existence earlier and after demolition both were reconstructed.
(3.) IN Kalyanji Mavji's case (supra), their Lordships have allowed the expenditure for renovating the building and machinery which are requisitioned and later on de-requisitioned. Whether the expenditure is in the nature of capital expenditure or revenue expenditure it depends upon the facts of each case. Their Lordships have taken the revenue expenses in the case of Kalyanji Mavji on the facts of that case but in the case in hand when the expenses are incurred on construction of swimming pool and boundary wall, which are of enduring nature, it cannot be said that these expenses are revenue expenses especially when it is not denied that the expenses on assets are of enduring nature. Whether the swimming pool and the boundary wall have been constructed or reconstructed at the Court's order, that does not make any difference in the nature of expenses. Once the expenses are on the assets which are of enduring nature, that expenditure should be allowed as capital expenditure. Considering the admitted facts, in our view the Tribunal has committed error in allowing the expenses in question as revenue expenses. In the result, the question is answered in negative i.e., in favour of the Revenue and against the assessee. The reference is disposed of accordingly.;